Commission on School Funding eyes property, sales taxes as future revenue generators
Boosting Nevada’s per-pupil spending to at least on par with the national average will cost more than $2 billion over a decade and be reliant upon property and sales tax reforms.
That’s the conclusion reached by an 11-member body charged with assessing the state’s school finance system and recommending a path toward larger per-pupil funding amounts. The Commission on School Funding, which was created in legislation overhauling the state’s antiquated education funding formula, submitted its preliminary recommendations to Gov. Steve Sisolak and the Legislature late last week.
It’s unclear whether they will heed the recommendations and pursue legislation enacting tax reforms in the remaining five weeks of the Legislature. The Governor’s Office issued a statement saying he is reviewing the recommendations, but it did not include his stance on the use of property and sales taxes.
Assembly Speaker Jason Frierson said in a statement that he does not support sales tax changes, describing it as a "regressive concept." He then offered other revenue-generating suggestions while nodding to the unlikelihood of any major tax reforms this session.
"I support looking at other ways to increase revenue, such as by closing corporate tax loopholes with international mining corporations and short-term rental companies, which pay nothing in many counties in the state," he wrote. "With regards to other revenue structures, many take time and robust stakeholder outreach and that has not been something we have had during this session."
Senate Majority Leader Nicole Cannizzaro did not respond to a query from The Nevada Independent.
The Commission noted it identified property and sales taxes as the best mechanisms for increasing revenue because they “cut across all areas of the economy.”
“Residents, visitors, and businesses of all types of purchase goods and services,” the report stated, “and residents, non-residents and businesses own or rent property.”
But the advisory body didn’t rule out blending a variety of taxes to achieve the lofty funding goals. The Commission suggests considering “supplemental” revenue sources — whether industry-specific, such as gaming, mining and insurance taxes, or business-related, such as the commerce or modified business taxes — to broaden the overall funding portfolio.
The long-awaited report also stops short of specifying what the optimal level of education funding should be. Instead, it proposes a “costing out” study that would take professional judgment and actual expenditures into account to determine what dollar figure — or optimal per-pupil funding — would improve student learning to meet the state’s goals.
The Commission, however, isn’t suggesting the state postpone funding increases. The 18-page report lays out a pathway that would move the state from restoration of education funds cut during the pandemic to adequate funding before ultimately achieving that coveted-yet-undefined optimal funding level.
Achieving so-called adequate funding would be a feat in itself. Last year, Nevada’s average per-pupil spending (not including capital expenditures) was $9,249. That’s 27 percent less than the national average, which was $12,645 per pupil. Moving the state’s per-pupil funding level to the national average is one option for reaching an adequate level, per the report.
The other definition of adequate funding is based on a prior state-directed study conducted by Augenblick, Palaich & Associates (APA). Adjusted for inflation, that per-pupil amount would be $14,337.
An additional $2.17 billion to $3.2 billion would be needed to achieve those per-pupil amounts over an eight- or 10-year period. The report notes the eight-year period may be “more realistic” because the phase-in of the new revenue would begin two years from now rather than during the upcoming fiscal year.
Here’s what that would look like over an implementation cycle:
- An average of $216.8 million in new revenue would be needed over a 10-year period to achieve the national average of per-pupil spending. Doing so in eight years would require the annual investment to be an average of $271 million.
- The average annual investment needed to reach the per-pupil figure recommended by APA would be $324 million over a decade or $405 million over eight years.
The numbers, while perhaps shocking, underscore what advocates have decried as chronic underfunding of the state’s public schools. Nevada regularly ranks at or near the bottom of Education Week’s annual report comparing states in terms of school finance.
The situation has triggered public rallies, funding-motivated lobbying coalitions and even a lawsuit. But those efforts have not yet dramatically moved the funding needle. In 2019, lawmakers spent the waning days of the legislative session passing SB543, which created a new school funding formula called the Pupil-Centered Funding Plan.
Lawmakers hailed it as an initial step; others criticized the new funding formula as pointless unless a large injection of funding accompanied it.
The Commission on School Funding, however, has been meeting over the interim to tackle the big funding questions — how much money is needed and where to access that revenue.
“The magnitude of the funding challenge dictates that administrative ease and transparency be considered, translating into a preference for the use of existing tax regimes versus those that would otherwise need to be developed from scratch,” the Commission report states.
That’s where the property and sales taxes come into play. The Commission suggests the state finally address property tax caps, which were put into place just before the housing bubble in the mid-2000s because of fears surrounding property assessments and rising property tax bills.
But, as the report notes, “much has changed since that time,” and now the statewide abatements exceed $1 billion. The Commission members say putting abated amounts into “productive use” could provide more than half the needed funding to achieve the national per-pupil average.
The Commission also recommends broadening the base of Nevada’s sales tax rather than simply increasing the tax rate, which could disproportionately affect people with lower incomes. Instead, the Commission asks the governor and Legislature to consider implementing a services tax on discretionary items that currently are not taxed.
“Using a companion tax rate of 6.85 percent, every additional $1 billion in trade that is captured by the companion services tax would generate more than $65 million per year,” the report explains. “As this is in current dollar terms, this amount could grow to more than $100 million per year by year ten of the funding horizon.”
For those who have long been pushing for school funding increases, the Commission’s report at least offers a possible path forward.
“Optimal is the optimal situation, but we’re happy if we can get to adequate in this time frame,” said Michelle Booth, communications director for Educate Nevada Now. “If we do better, that’s the icing on the cake.”
Booth said she hopes lawmakers don’t shy away from making any strides this session simply because of the federal relief funding headed to Nevada schools. That’s a temporary situation largely meant to address backward academic slides associated with the pandemic.
“If that funding expires without a plan, we’re going to hit a fiscal cliff,” she said.
Caryne Shea, vice president of the education advocacy group HOPE for Nevada, said it would be “incredibly irresponsible” for lawmakers to punt the tax discussions to a future session, though she’s not optimistic any movement will happen this year.
She commended the Commission for “looking under every sofa cushion” for uncaptured tax revenue that could brighten the future of Nevada’s students. Now, she said, it’s a waiting game to see whether the governor and legislators — who appointed the Commission members — take their advice.
“They’re really looking for stability and predictability, and I think that’s the right way to go,” Shea said, referring to the property and sales tax suggestions. “Eventually, we need to get to sufficiency, but right now, we’ve just seen the yo-yo happen back and forth so many times because of our dependency on very few areas.”
This story was updated at 9 a.m. on 4/27/2021 to include a response from Assembly Speaker Jason Frierson.